Question

Cox Company recently purchased a machine by paying $9,800 cash and signing a 6-month, 10% note for $10,000. In addition to the purchase price, Cox incurred the following costs related to the machine: freight charges, $800; interest charges, $500; special foundation for machine, $400; installation costs, $1,100. Required: Determine the cost of the machine.

Answer 1

The total cost of the machine purchased by Cox Company is $22,100, which includes the cash paid, the principal amount of the note, freight charges, special foundation, and installation costs, but excludes interest charges as they are not capitalized.

Step-by-step explanation:

To determine the cost of the machine purchased by Cox Company, we need to consider all relevant expenses that add value to the machine. The initial purchase price paid in cash and the amount of the note signed are part of the cost, along with any additional expenses necessary to get the machine ready for use. To calculate the total cost, we add up the following:

• Cash paid: $9,800
• Note payable (principal amount): $10,000
• Freight charges: $800
• Special foundation: $400
• Installation costs: $1,100

However, the interest charges are not included in the cost of the machine as they are considered financing expenses and not part of the capital investment for the machine.

Thus, adding up all the costs except interest charges, we get:

$9,800 + $10,000 + $800 + $400 + $1,100 = $22,100

The total cost of the machine is $22,100.

Answer 2

$22,100

Step-by-step explanation:

Given that,

cash paid = $9,800

Notes payable = $10,000

freight charges, = $800;

interest charges, = $500;

special foundation for machine, = $400;

installation costs, = $1,100.

Total cost of machine:

= Cash paid for machine + Notes payable signed for machinery + Freight charges + Special foundation to machine + Installation costs

= $9,800 + $10,000 + $800 + $400 + $1,100

= $22,100